China's ongoing battle to achieve sustainable development entered a new realm this year as Bank of China ushered in the concept of investing in sustainable, long-term projects.

In February, Bank of China International Investment Managers (BOCIIM), a joint venture with Merrill Lynch, launched its Sustainable Growth Equity Fund. It wasn't until a Bangkok investment conference in late May, though, that it received international attention as the first socially responsible investment (SRI) fund in China.

But even as the international SRI community clinks glasses for their new Chinese counterparts, some experts remain hesitant. Environmentalists are concerned about vague terminology and a lack of incentives. Investment experts warn that the lack of transparency makes evaluating companies on their SRI criteria difficult, which makes the future hazy for this type of investment.

SRI a term Bank of China investment managers don't even use refers to investments that use non-economic criteria, such as environmental or social policies, to select companies for a portfolio.

"We have an evaluation system, which considers the track record of the management, the transparency of the company and their social responsibility," said Chen Jun, the assistant fund manager at BOCIIM.

Fund managers in the West rely on external third-party evaluations to determine whether a company is suitable for an SRI fund. But Chen said BOCIIM talks with management themselves and sends in-house analysts to visit factories and companies.

That makes environmentalists such as Jennifer Turner nervous. Turner, who heads the China Environment Forum at the Woodrow Wilson International Center for Scholars, said an SRI fund is a good way to get at polluting Chinese industries, but that without transparency, there is no incentive to be socially responsible, so the whole concept fails.

"In essence, you have Bank of China, a government bank, judging Chinese factories that are government-owned," said Turner, of Washington, DC.

Ideally, a mixed panel of researchers, citizens and non-governmental organizations are needed to ensure transparency.

Meeting SRI criteria makes for reliable investments ones that people should want and ones that China needs, said Melissa Brown, executive director of the Association for Sustainable and Responsible Investment in Asia.

But fund performance is the key, and although SRI funds often outperform regular mutual funds in the West, Brown said she doubts they will do as well in the current Chinese market.

"And obviously they won't be dumping sewage in a river and paying huge fees," she said.

Patience for investment is a problem in China, where high-risk, volatile profit-making is the norm. Brown said successful funds need to "attract capital that will stay in the country."

But if investors are patient, "as China does more work on the environment, there are going to be spectacular opportunities for Chinese companies in the environmental sector," Brown said.

China has recently enacted more environmental legislation, and that, coupled with a growing awareness among the middle class, has created a market for SRI funds among Chinese investors, which then opens the door for environmental companies in those funds to succeed.

"Maybe it's not as good as international companies, but this company is better than its peers in China," he said, adding there was more room for long-term returns.

Turner notes that it all comes back to incentives.

"A lot of joint ventures tend to have cleaner technologies because the international companies know that they have their stockholders, and maybe their SRI funds, back home," Turner said. "They have criteria to meet."

But in China good corporate governance, which can help ensure transparency, can be hard to find. That's where people such as Martha Grossman come in.

"It's just not as effective for an organization to evaluate its CSR (corporate social responsibility) internally," said Grossman, general manager of RepuTex China. "It really needs the rigour of an external, independent party."

RepuTex evaluates CSR, which includes traits such as transparency and environmentalism. The Australian firm opened a Shanghai office earlier this year. On June 10, Grossman conducted a workshop in Shanghai with masters of business administration students from around Asia.

If the enthusiasm of Grossman's student audience is any indicator, it bodes well for ethics and values among Chinese companies. That would make the future of socially responsible investments brighter.